Royce Global Value Trust Manager Commentary
article 06-30-2017

Royce Global Value Trust Manager Commentary

We were very pleased to see performances from holdings in the U.S, the U.K., Japan, and more than 20 other countries in the first half.


Fund Performance

Royce Global Value Trust (“RGT”) advanced 16.1% on a net asset value (“NAV”) basis and 19.6% on a market price basis for the year-to-date period ended June 30, 2017, significantly outperforming its unleveraged benchmark, the Russell Global Small Cap Index, which was up 10.5% for the same period. These were impressive results on both an absolute and relative basis. We were especially pleased that positive performances came from holdings in the U.S., the U.K., Japan, and more than 20 other countries in the first half. Indeed, after several years in which international small-caps languished, their recent resurgence has been more than welcome, especially as more than two-thirds of RGT’s net assets were invested in non-U.S. companies at the end of June compared to 58.7% for the benchmark.

Getting off to a fast start, the Fund climbed 7.9% on an NAV basis and 9.4% on a market price basis for the first quarter, outperforming its benchmark, which was up 6.0% for the same period. This trend continued in the second quarter, in which RGT’s results tracked very closely to its first-quarter returns. The Fund was up 7.6% based on NAV and rose 9.3% based on market price compared to 4.2% for the Russell Global Small Cap Index in the second quarter. We were also pleased that the Fund outperformed its global small-cap benchmark for the one-year period ended June 30, 2017 on both an NAV and market price basis.

What Worked… And What Didn’t

Nine of the Fund’s 10 equity sectors finished the semiannual period in the black. Industrials and Information Technology led by fairly wide margins, though notable contributions also came from Financials and Health Care. At the industry level, four groups made particularly notable gains, led by capital markets (Financials), which has long been an area of focus for us, especially on a global level. Strong results also came from electronic equipment, instruments & components, health care equipment & supplies, and IT services. The first and third of these groups are in Information Technology, the second in Health Care. (Along with Industrials, these were the top-contributing sectors to the Russell Global Small Cap’s first-half performance.)

At the position level, the portfolio’s top contributor was Indian consumer finance company Bajaj Finance, which rebounded off a relatively weak fourth quarter of 2016 owing to the government’s surprising decision to demonetize in November. During the first half of 2017, however, fiscal third-quarter results (released in January) revealed margin improvement and high asset quality while fiscal fourth-quarter results, which came in May, showed the strength of Bajaj’s 320-city presence in consumer and commercial lending operations. Although we trimmed our stake as its shares climbed, we believe the company can continue to benefit from its strong position in India’s nascent credit markets.

The stock of California-based laser diode and equipment maker Coherent was galvanized by ongoing sales and earnings growth driven by vibrant demand for ramped up OLED (organic light-emitting diode) capacity. Raven Industries, also a U.S. firm, provides precision agriculture products, high-performance specialty films, and what it calls lighter-than-air technologies. Its shares rose on improvements in consolidated sales and earnings, driven by strength in the firm’s Applied Technology and Engineered Films units.

Hurt by falling oil prices, Energy was the only sector that detracted from first-half performance, though its negative impact was comparably modest. Unsurprisingly, the portfolio industries that detracted most come from this same sector—energy equipment & services and oil, gas & consumable fuels. The top detractor at the position level was SEACOR Holdings, which provides marine transportation equipment and logistics services mostly for the energy and agricultural markets. Its earnings remained pressured by ongoing weakness in the offshore marine vessel business, which was exacerbated by the decline in oil prices in the first half, as well as overcapacity in its inland river barge and tow business. From the otherwise strong capital markets group, Toronto-based Dundee Corporation, which is involved in wealth management, real estate, and natural resources, experienced losses in mining- and resource-based activities that put downward pressure on its shares.

Relative to the Russell Global Small Cap, the Fund benefited most from savvy stock selection in Financials, especially in capital markets and consumer finance. Also helping were superior stock picks in Industrials and Information Technology. The impact of relative detractors was far less significant and included ineffective stock picks in the Materials sector and our underweight in Telecommunication Services.

Top Contributors to Performance Year-to-Date Through 6/30/171 (%)

Bajaj Finance0.59
Raven Industries0.38
Cognex Corporation0.36
Relo Group0.33

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/172 (%)

SEACOR Holdings-0.25
Dundee Corporation Cl. A-0.17
Signet Jewelers-0.10

2 Net of dividends

Current Positioning And Outlook

Even after the strong start to 2017, we continue to find attractive opportunities in both U.S. and international companies. Select valuations in many parts of the world, including the U.S., still looked attractive to us at the end of June, especially in the context of expanding global growth. Recent data showed that the second quarter of 2017 was the eurozone’s best in more than six years, boosted by strong manufacturing numbers, job growth, and elevated business confidence. Additionally, in mid-July China reported surprisingly strong GDP growth for the second quarter, driven by increased retail sales, investment, and industry output. We are also confident in the prospects for smaller companies with earnings growth here in the U.S.

Average Annual Total Returns Through 06/30/17 (%)

RGT 9.3319.5828.682.393.25 10/17/13
XRGTX 7.6116.1124.233.435.06 10/17/13

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance, Expense and Disclosure Information

Current month-end performance may be obtained at our Prices and Performance page.

Notes to Performance and Other Important Information

The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at June 30, 2017, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of June 30, 2017 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.

As of 6/30/17, the percentage of Fund assets was as follows: Modetour Network was 0.9%, Conviviality was 0.7%, Nova Measuring Instruments was 0.4%, Integrated Micro-Electronics was 0.4%, Proact IT Group was 0.8%, AGT Food and Ingredients was 0.8%, Quintis was 0.0%, Aegean Marine Petroleum Network was 0.3%, AURELIUS Equity Opportunities was 0.0%, Handsome was 0.0%.

Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI. 

All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. The Russell 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell 1000 Index is an index of domestic large-cap stocks. It measures the performance of the 1,000 largest publicly traded U.S. companies in the Russell 3000 Index. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index. The Russell Global ex-U.S. Small Cap Index is an index of global small-cap stocks, excluding the United States. The Russell Global ex-U.S. Large Cap Index is an index of global large-cap stocks, excluding the United States. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to: 

-the Funds’ future operating results,

-the prospects of the Funds’ portfolio companies,

-the impact of investments that the Funds have made or may make, the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

-the ability of the Funds’ portfolio companies to achieve their objectives.

This discussion uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.

The Royce Funds have based the forward-looking statements included in this commentary on information available to us on the date of the commentary, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make through future shareholder communications or reports.

The Fund is a closed-end registered investment company whose shares of common stock may trade at a discount to their net asset value. Shares of the Fund's common stock are also subject to the market risks of investing in the underlying portfolio securities held by the Fund.



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